Rupee recovers to 89.96 after hitting record low - markets split on whether it will break 91
INR recovered to 89.96 against USD. Much of the depreciation in the Indian currency is due to anxiety over the India-US trade deal and dollar outflows by foreign portfolio investors.
- Dec 4, 2025,
- Updated Dec 4, 2025 7:20 PM IST
The falling rupee, which touched a fresh all-time low of 90.43 against the US dollar on Thursday before ending the day at 89.96, could spell good news for Indian exports but at the same time raises questions on the trade deficit as crude oil and commodity prices rise, which could also fan inflationary pressures.
But for now, policymakers are not overtly concerned, noting that the domestic economy remains strong and inflation is at a record low. Chief Economic Adviser V Anantha Nageswaran had on December 3 noted that the falling rupee is not affecting inflation or exports. A falling Rupee helps outward shipments but makes imports costlier.
Much of the depreciation in the Indian currency is due to anxiety over the India-US trade deal and dollar outflows by foreign portfolio investors.
“The rupee is down past the Rs 90/$ mark. Why is this happening? Dollar outflows from FPIs. Trade deficit probably widening with export growth slowing down. The deal with the USA is still not on the table,” said Madan Sabnavis, Chief Economist, Bank of Baroda.
The rupee breached the 90 level against the US dollar on December 3, but there is expectation that it would hold against 91 levels and could possibly even stay in the 88-89 level. Markets are awaiting the Reserve Bank of India’s monetary policy statement on Friday.
Sreejith Balasubramanian, Senior Vice President & Economist – Fixed Income, Bandhan AMC, said the recent INR depreciation seems to be driven by higher US tariffs, rising core imports, nominal growth moderation, and the extent of RBI’s FX intervention. “RBI’s Real Effective Exchange Rate (REER) has fallen 10% y/y but on the back of relative over-valuation during 2023-2024,” he further said.
Rajeev Sharan, Head – Criteria, Model Development & Research, Brickwork Ratings, noted that the rupee’s fall below 90 against the dollar brings mixed consequences. “While export sectors like IT and textiles gain competitiveness, higher import costs for crude and raw materials will squeeze margins and widen the trade deficit. Rising inflationary pressures could dampen consumer demand and corporate profitability, while firms with unhedged foreign borrowings may face financial stress.”
Following initial volatility, the agency expects the rupee to settle below 90 as fundamentals rebalance and markets adjust to the new equilibrium.
The falling rupee, which touched a fresh all-time low of 90.43 against the US dollar on Thursday before ending the day at 89.96, could spell good news for Indian exports but at the same time raises questions on the trade deficit as crude oil and commodity prices rise, which could also fan inflationary pressures.
But for now, policymakers are not overtly concerned, noting that the domestic economy remains strong and inflation is at a record low. Chief Economic Adviser V Anantha Nageswaran had on December 3 noted that the falling rupee is not affecting inflation or exports. A falling Rupee helps outward shipments but makes imports costlier.
Much of the depreciation in the Indian currency is due to anxiety over the India-US trade deal and dollar outflows by foreign portfolio investors.
“The rupee is down past the Rs 90/$ mark. Why is this happening? Dollar outflows from FPIs. Trade deficit probably widening with export growth slowing down. The deal with the USA is still not on the table,” said Madan Sabnavis, Chief Economist, Bank of Baroda.
The rupee breached the 90 level against the US dollar on December 3, but there is expectation that it would hold against 91 levels and could possibly even stay in the 88-89 level. Markets are awaiting the Reserve Bank of India’s monetary policy statement on Friday.
Sreejith Balasubramanian, Senior Vice President & Economist – Fixed Income, Bandhan AMC, said the recent INR depreciation seems to be driven by higher US tariffs, rising core imports, nominal growth moderation, and the extent of RBI’s FX intervention. “RBI’s Real Effective Exchange Rate (REER) has fallen 10% y/y but on the back of relative over-valuation during 2023-2024,” he further said.
Rajeev Sharan, Head – Criteria, Model Development & Research, Brickwork Ratings, noted that the rupee’s fall below 90 against the dollar brings mixed consequences. “While export sectors like IT and textiles gain competitiveness, higher import costs for crude and raw materials will squeeze margins and widen the trade deficit. Rising inflationary pressures could dampen consumer demand and corporate profitability, while firms with unhedged foreign borrowings may face financial stress.”
Following initial volatility, the agency expects the rupee to settle below 90 as fundamentals rebalance and markets adjust to the new equilibrium.